The year 2000 started out well for Doug Augustine. His more than
75-employee San Diego company, Bidland Systems, had developed
software for online auctions and was pursuing a joint-venture deal
with multinational telecom company Telefonica for Spanish-speaking
markets outside the United States.

The good times ended when Bidland sued Telefonica in 2000 for
breach of contract, alleging that Telefonica promised a joint
venture to access Bidland's marketing strategy and
technology--information Telefonica then used to start its own
auction site, Katalyx.com. The case was settled in November 2004
for an undisclosed amount, but Bidland didn't live to see that
day--unable to raise funds or sell the business with the lawsuit in
progress, the company ceased operations in 2001. "At least we
got our investors their money back," says Augustine, 47.
"[But] it's a hollow victory."

Welcome to an entrepreneur's worst nightmare: A large
company calls, promising the moon, and you end up out of business,
watching your ideas go to market without you. As intellectual
property increasingly drives business, more companies are fighting
over it: 2,978 U.S. patent suits were filed between March 2003 and
March 2004, an increase of nearly 8 percent over the prior
year.

Such lawsuits can be costly. Trade secret misappropriation suits
with $1 million to $25 million in assets at risk cost an average of
$875,000 to litigate in 2003, while patent infringement suits
(again, with $1 million to $25 million at risk) cost businesses an
average of $2 million, according to the American Intellectual
Property Law Association, an Arlington, Virginia,
intellectual-property advocacy group.

Whose Idea Was This, Anyway?

A small company has a lot to gain--and a lot to lose--by joining
forces with a bigger company on a project. "In most instances,
[a joint venture] works beautifully, but when it doesn't work,
the story line is somewhat familiar," says Gabriel Berg, a
partner with New York City law firm Berg & Androphy who has represented Bidland
and other small firms alleging idea theft. In many of these cases,
Berg says, the smaller company protects itself through
nondisclosure agreements and by withholding information early on.
But the smaller company can feel pressure to spill the beans
because it needs the larger company's resources. "A lot of
times, they just need the big company's money," he says.
"It's a difficult spot to be in."

It's easy to think nondisclosure agreements are enough, but
most leave room for either party to claim that nothing new has been
invented. "Whatever's in the public domain is fair
game," Berg says. "That gives both sides room to come
back later and say, 'Oh, we always knew how to do
that.'"

Who brought what to the table during a brainstorming session is
another problem. This is why documentation, starting with a patent
or copyright, is so important. A full patent application, however,
can cost $10,000. Another option is the provisional patent a
preliminary step to filing a regular patent that provides 12 months
of patent protection. It requires less attorney time and often
costs less than $1,000. "It's a good investment,"
says Jennifer Albert, an intellectual-property attorney in the
Washington, DC, office of Hunton & Williams who has represented both
startups and Fortune 100 companies in such cases. "It also
shows that you're serious about your claim of right."

Next, have the other party sign a short agreement upfront that
says the two companies met and includes a general definition of the
concept being discussed. The agreement should also say that the
information is being disclosed so the other party can decide
whether to enter a joint venture, and that this is the only way the
information can be used.

Entrepreneurs sometimes shy away from tough negotiating, but a
Fortune 500 company "wouldn't think twice about asking
another company of equal size to sign such an agreement,"
Albert says.

Wrap It Up, Already

A big company has to do its own due diligence, but you're at
risk if months pass without a deal in place. "The cases I have
in my office generally have a nego-tiation period of six, seven,
eight months, sometimes longer," Berg says. "It's
important to keep pushing for a deal."

Research the other company's joint ventures, partnerships,
and legal cases for red flags before the first meeting. You never
know what you might find.

Bidland's negotiations fell apart after more than six months
of starts and stops. "Don't get so excited that [you]
allow yourself to be taken advantage of," says Augustine, who
now works in Norwalk, Connecticut, for global sports marketing firm
Octagon Worldwide. "You've got to be careful."